Economic diplomacy brief: Trade after Trump, business pressures, Unbanked in Asia and more

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Donald Trump’s election victory has turned regional trade negotiations upside-down, presenting US officials with an exquisite dilemma at the Asia-Pacific Economic Cooperation (APEC) group meetings in Peru: they can stand by and see China take the running on the decade-old idea of a Free Trade Area of the Asia Pacific (FTAAP), originally a US initiative, or they can quietly try to negotiate a face-saving delay while the deck chairs are shuffled in Washington.

The problem is should the bigger 21-member FTAAP idea with its full US participation be put on hold, the focus in Asia will shift to completing the more advanced 16-member Regional Comprehensive Economic Partnership (RCEP) – this group has long been the implicit alternative to the 12-member US-led Trans-Pacific Partnership (TPP) that now seems dead in the US (although not necessarily for all other members). The problem in particular is that the US is not a member of RCEP.

Amid all the election debate about trade, it is not well known that the RCEP took some significant steps forward around a ministerial meeting in the Philippines in October. These included:

The completion of the agreement’s first chapter on economic and technical cooperation.

The acceptance that it will be completed as a single undertaking, unlike some other Asian agreements which have had 'early harvest' arrangements that can slow a finished agreement.

A broad acceptance that countries will make basic common trade barrier reductions to all rather than selectively - although there will still be provisions for countries to phase in some of these reductions over a 15-20 year period.

It became clear that serious China/Japan and China/India bilateral market access negotiations are now going on reflecting the growing momentum inside the RCEP group.

The RCEP has always been a bottom-up negotiation aimed at trying to harmonise the noodle bowl of existing bilateral regional agreements with additional liberalisation on top. This contrasts with the more top-down TPP driven by the US as setting the rules for the 21st century. The RCEP is comparatively less forward-looking.

But Australian business has been showing much more interest in the RCEP as the TPP hit heavy water because the Asian-focused group better covers the increasingly typical regionwide supply chains for Australian companies, particularly through China.

Both agreements are seen equally as pathways to the long-time APEC holy grail of a regionwide, liberalised trade and investment framework, now represented by the FTAAP. The irony is the US first suggested the FTAAP within APEC forums but then dropped it in favour of the TPP where it could call more of the shots in the absence of China, along with India and Indonesia. Promoting the TPP as a strategic initiative (read: containing China) may now come to be seen as a strategic error by the US, when it could have pursued a broader but probably lower quality agreement under the FTAAP framework. We previously reported the strategic alarm about a TPP failure at the recent second track Australia-Association of Southeast Asians Nations (ASEAN) Dialogue here.

But China seized on the moribund FTAAP during its 2014 year running APEC, setting in train the joint study due at this week’s APEC gathering in Peru (although there are suggestions China and the US have had trouble agreeing on common recommendations).

China is also the biggest economy in the RCEP (contrary to most media reports it is not the 'leader', however). ASEAN countries are at the core of the RCEP negotiations – this gives Australia an influential role as the 2009 Australia/New Zealand trade agreement with ASEAN provides a 12-country starting point for the 16-member RCEP group.

The three key recent developments in the broader group are:

The statement from the latest meeting of economic ministers from China, Japan and South Korea on 29 October hints at new momentum with those countries saying they would accelerate a China-Japan-Korea free trade agreement and RCEP negotiations with the intention of achieving 'high-quality and meaningful results in relevant areas of RCEP negotiations and strive for a modern, comprehensive, high-level and mutually beneficial free trade agreement'.

The Indian government has sold the Indian media on the idea that it pushed the single undertaking through the Philippines meeting on the basis this would win services trade benefits for India’s IT industry to offset likely goods trade losses. But the single undertaking has long been a key principle of a comprehensive agreement sought by countries such as Australia.

Japan has ratified the TPP (underlining how central it has become to Prime Minister Shinzo Abe’s domestic reform plans) but has also drawn a protective line around some key TPP elements for the RCEP and FTAAP negotiations.

Business under pressure

With the RCEP gaining momentum, the pressure is on business to ensure the negotiations produce the smooth-flowing Asian supply chains that its advocates promise. The plans for industry workshops on the margins of the next RCEP negotiations in Jakarta this month should be taken seriously by businesses with an Asian footprint, especially if the RCEP emerges from the APEC leaders meeting as the main game. The Australian Industry Group is trying to get individual company voices into these workshops to add real practical advice to the ideas from business groups. And while various critics (see here, here and here) are emerging to attack the RCEP as TPP-lite with even less transparency, the negotiators are providing quite detailed feedback to business participants.

Asian foreclosure

The Australian banking departure from Asia continues just as the foreign policy-makers debate the need for more regional engagement after the US election. The latest evacuee is Westpac, which has cut staff across the region but most notably closed its branch in the Shanghai free trade zone. Angus Grigg reports the decision was influenced by tighter lending standards for foreign buyers in Australia and difficulty making money from retail banking in China. Westpac's departure following actions by the Commonwealth Bank and the ANZ Banking Group; this is now a trend with some potential economic diplomacy consequences.

Trumpfest: Four choice cuts

Trade tremors: It is hard to go past this New Yorker profile of Trump’s campaign trade adviser Peter Navarro for an insight into why this weekend’s APEC meeting will be like waiting for a bubble to burst. 'Until the trade issue is fixed, there can be no prosperity in the global economy,' Navarro says in a challenge to just about anybody who has ever gone to an APEC meeting.

Trade truths: In the New York Times, Thomas Bollyky and Edward Alden provide a roadmap for government officials trying to convert the campaign trade promises into a policy. 'The goal of economic nationalists like Mr Trump should be to bolster the ability of government to act effectively and in the best interests of its citizens in expanding and managing global commerce. To do this, we need more, not less, cooperation in global trade,' they argue.

Putin’s pals: Japanese public intellectual Yoichi Funabashi confirms in this New York Times piece that Japan is paranoid about Trump and not prepared to pay more for defence. But he provides an intriguing pathway for Shinzo Abe to bond with Trump over Russian president Vladimir Putin. 'Although Russia may seem like a disruptive power from the vantage point of the west, it could be an agent of stability in the Asia-Pacific region,' he writes.

Nixon redux? Former US diplomat and intelligence official Robert Manning provides an insight into the training of the new president in this Nikkei piece, with a positive takeaway: 'If there is one saving grace it is that Trump is not an ideologue, but a pragmatic dealmaker, transactional in his worldview. He may most resemble Richard Nixon: few predicted his opening to China or his very liberal social and economic policies.'